Manufacturing remains vital to UK economy – EY comments on Government’s Industrial Strategy

24 January 2017

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Mark Gregory, EY’s chief economist, comments on the Government’s Industrial Strategy:

“The Government’s commitment to an industrial strategy is to be welcomed. Despite being written off by many commentators, manufacturing remains very important to the UK economy with around 3 million people directly employed in the sector and a similar number of services jobs directly supported. EY’s 2016 UK Attractiveness Survey found that for every foreign direct investment project in a manufacturing plant, there was a matching investment across the supply chain in areas such as logistics, R&D and sales and marketing. Manufacturing has a significant multiplier effect and more UK Government support is a positive development as is the focus on seeking to boost activity in UK regions and cities.

“The broad direction of the proposed industrial strategy, with extra support for research and a focus on skills and infrastructure, is consistent with our findings from investor research. Skills and infrastructure consistently top the list of attributes that corporates tell us drive investment attractiveness, especially in the UK’s regions.

“However, this strategy is perhaps more appropriate to a country with a strong and growing global position in manufacturing. The UK by contrast has seen the number of people employed in the sector decline in the last two decades with offshoring of production a key factor. EY research in 2014 found that the UK had offshored a greater share of industrial production than any other developed country between 1995 and 2011. As a consequence, investment in manufacturing has lagged our peers. According to research from Oxford Economics, in 2014 Germany had around 270 robots per 10,000 manufacturing employees (compared to 150, 120 and 60 per 10,000 employees in the US, France and the UK respectively), and UK supply chains have been hollowed out.

“For too long UK businesses have had to compete internationally against companies that have been recipients of direct or indirect support from their national governments. Our post-EU referendum survey of foreign investor needs found that incentives are seen as important in maintaining the UK’s attractiveness in future.  If the UK wishes to be a global player, we need to act to change our current competitive position. This will require commitment of greater resources on incentives and in investing at a greater scale, potentially in publicly provided assets.”

ENDS

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